Telecom NZ wants full structural separation

Stuart Corner
Friday, 13 April 2007 11:23

IT Policy - Regulation

Telecom NZ says that the Government's proposal for operational separation of its wholesale and retail arms will not work and instead it is advocating full structural separation.

Telecom's views are set out in its response to the New Zealand Government's proposals for its operational separation, contained in a consultation document released by the Ministry of Economic Development last week. 

Telecom Chairman Wayne Boyd said "Our principal concerns are that the consultation document released last week proposes a very complex form of separation that goes significantly beyond the BT model, and in our opinion fails to address important questions around investment....The emphasis on a strict form of separation is inconsistent with the desire of our wholesale customers to see new regulated services placed into the market as soon as possible.

He claimed that the proposed form of operational separation would create "an independent, but unsustainable Access Network Services unit that has no capability or incentive to invest."

Instead Telecom is proposing the creation of a structurally separated 'Netco' that would own the fixed bottleneck access assets and would have "the right capability and incentives to meet New Zealand's future needs."

This Netco would own the physical copper access assets (but not electronics) and would be provided with a regulated rate of return in sufficient to provide it with the cash flow necessary to invest to meet customer demand. It would be prevented from investing upstream and re-integrating. It could also potentially be protected by regulation from network bypass if that was considered desirable to allow access cross-subsidies.

Also, Telecom does not see that it needs to own the asset. "It could be sold outright or could be folded into a partnership with industry participants and/or the Government."